I guess I understand supply and demand – I have something I judge more valuable, I’ll ask for a higher price to sell it for.
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I wonder how company stock is valued – Is it enough to have one single person ask for a certain price for a stock to change its value?
I guess I’d like to understand it in terms of a company that only has 10 shares. If I’m the owner of one, how impactful am I in changing its price?
In: Economics
Imagine you own one share, Brianne owns 4 shares, and Claudio owns the remaining 5.
Brianne has offered her shares for sale on an exchange, and her order is: Sell for $5 per share. Claudio has offered his for $6. So if Dee comes along wanting to buy 3 shares, she will search for the lowest selling offer currently open, and that’ll be Brianne, and Dee will buy 3 shares for $5 each. Brianne has 1 left, and the price is still $5 (unless Dee’s interest has convinced Brianne that she should change her asking price.)
But suppose you have offered your single share for sale for 4 dollars. At that moment, the cheapest share available for sale is 4 dollars. Then when Dee comes along and searches for the lowest offer, she’ll see yours. But she wants 3 shares and you only have 1, so she buys your share and 2 of Brianne’s, and now the lowest available price is $5 again. The trading price won’t rise to $6 until all Brianne’s shares are gone.
So, if you like, with a single share, you can single-handedly force the price of a $100 stock down to $1, *sort of*. But the price will only be that low for as long as it takes to sell all your holdings. Which will probably happen in the blink of an eye. If you wanted to bring the price down to $1 and hold it there indefinitely, you would have to own so many stocks that you ran out of interested buyers before you ran out of stocks. And the law of demand is that the lower the price, the more interested buyers you’ll find.
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